When a company issues and sells its shares, it increases its share capital and receives cash or other forms of consideration in return. Below is the standard journal entry for issuing and selling shares.
Journal Entry for Selling Shares
Scenario: A company issues 1,000 shares at ₹50 per share.
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-01 | Cash/Bank A/c | 50,000 | |
| To Share Capital A/c (1,000 shares @ ₹10 each) | 10,000 | ||
| To Securities Premium A/c (1,000 shares @ ₹40 each) | 40,000 | ||
| (Being shares issued and sold at a premium) |
Explanation:
- Cash/Bank A/c is debited with the total amount received from the sale of shares.
- Share Capital A/c is credited with the nominal (par) value of the shares.
- Securities Premium A/c is credited with the amount received over and above the nominal value.
Example with Different Details
Scenario: A company issues 500 shares at ₹100 per share (nominal value ₹20 per share).
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-01 | Cash/Bank A/c | 50,000 | |
| To Share Capital A/c (500 shares @ ₹20 each) | 10,000 | ||
| To Securities Premium A/c (500 shares @ ₹80 each) | 40,000 | ||
| (Being shares issued and sold at a premium) |
In this example:
- Cash/Bank A/c is debited for the total amount received (500 shares * ₹100 per share).
- Share Capital A/c is credited for the nominal value of the shares (500 shares * ₹20 per share).
- Securities Premium A/c is credited for the excess amount received over the nominal value (500 shares * ₹80 per share).
These entries accurately reflect the issuance of shares, increasing both the company's cash position and its equity through share capital and securities premium.
